JCSM Shareware Collection 1993 November/JCSM Shareware Collection - 1993-11.iso/cl060/havensj.lzh/CHAPTER.12

Text File | 1993-01-21 | 15KB | 272 lines

                    Switzerland:  Less than Meets the Eye


              The reader may have wondered why Switzerland and
          Liechtenstein are not considered together in a chapter on
          European havens.  The reason is simple:  Switzerland is not
          a tax haven.  Not any more.

              This may come as a shock.  Many people think "tax
          haven" means a numbered account with a Swiss bank.  This is
          a fallacy today.  Switzerland is no longer even a banking
          haven, and all its remaining advantages are offered by Hong
          Kong, Liechtenstein, and other countries without its
          present disadvantages.  Such a conclusion is liable to be
          greeted with considerable skepticism.  So let us detail why
          Switzerland is not a tax haven and why those seeking a
          haven should stay out of the Swiss Alps.

              Why is Switzerland so widely considered a tax
          haven?  To begin with, there is its remarkable internal and
          international political stability.  It has been a most
          successfully neutral country in many European wars and both
          world wars, so in modern times, its economy has never been
          devastated by war's destruction.  Also, it is a basically
          free enterprise country with little government regulation
          and economic control and relatively low taxes.  Its banks
          have had a tradition of inviolate secrecy, stability, and
          reliability.  Its currency, the Swiss franc, has a very
          good reputation and is very strong and stable.

              The country is geographically in the center of
          Europe, where major continental roads from east, west,
          north, and south intersect.  Its internal roads and
          railways are excellent, and all its transportation services
          are punctual.  It is also accessible by river barge
          directly from the sea.  Airline service is tops, and
          telecommunications are the very best available.  Needless
          to say, professional services are of the very highest
          quality and reliability.

              As we have noted, Switzerland is politically
          stable, as is well attested to by its history, legal
          structure, and present socioeconomic situation.  Its basic
          constitution, enacted in 1848 and slightly revised in 1974,
          gives the country a confederation system.  It has 123
          articles, specifying rights and duties of both citizens and
          the government.  The twenty-five cantons (states) have
          inalienable constitutional rights that cannot be usurped by
          the federal government.  There is a seven-man national
          cabinet, nationally elected.  The foreign policy has for
          centuries been peaceful neutrality concerning all
          international conflicts.  The legal system is grounded in
          the civil law tradition.

              Switzerland is multilingual; German, French,
          Italian, and Romansch are official languages.  German is
          the most widespread tongue, having a variety of local
          dialects.  English and French are universally taught in the
          high schools, and the business community is widely
          conversant with them.

              Both the federal government and the cantons as well
          as the municipalities tax separately, with cantonal taxes
          the heaviest.  Companies are taxed both on their profits
          and on their capital by the federal government and the
          cantons, as well as the "community."

              Company taxes are not flat but progressive.  The
          brackets depend not on the total volume of a company's
          profits, but as in Liechtenstein, on the "profit
          intensity," the ratio of profits to capital.  All taxes on
          worldwide income add up to usually 25-35 percent.
          Switzerland is clearly no tax haven.  The individual income
          tax is also progressive and is levied on the total of one's
          worldwide income.

              There is special tax treatment for holding
          companies.  This special treatment applies also to ordinary
          companies to the extent that they operate as holding
          companies and derive income from merely "Passive" sources
          (dividends, interest, etc.).  Such tax exemptions are
          highly limited, however; for instance, they do not apply to
          interest from loans and royalties from leases paid by
          companies in which one has stock ownership.  Still, a pure
          holding company pays no federal income tax, only a federal
          capital tax on the value of share capital and a similar
          canton capital tax.

              Domiciliatory companies, those based in Switzerland
          but doing business only outside the country, have been
          granted exemptions from local income taxes by some cantons.
          The applicable taxes are reduced cantonal capital tax,
          federal income tax, and federal capital tax.

              Apart from these taxes, one has to consider a
          turnover tax of 4-5 percent against payment on the internal
          delivery of goods by a wholesaler.  This can be avoided if
          the goods are immediately exported or if they are merely in
          transit.  There is a similar tax on imported goods, on top
          of the import duty.

              Even with a purely investment-holding company,
          there is one huge liability:  a 35 percent withholding tax
          imposed on dividends paid to foreign stockholders.  It
          applies indiscriminately to dividends, interest on bonds,
          and interest on bank deposits; only royalties are exempted.

              Might not the double-taxation agreement between the
          United States and Switzerland allow one to consider
          Switzerland as a base for a holding company?  On the
          surface, this seems to be so.  The agreement reduces the
          U.S. withholding tax on dividends to 15 percent.  However,
          the Swiss government has taken special measures to restrict
          the usability of the agreement for tax minimization
          purposes.  If, say, more than 50 percent of the profits of
          a Swiss company derived from U.S. sources are paid to
          aliens, no withholding tax benefits can be claimed.  One
          may think that the way out is not to distribute to himself
          dividends from his Swiss company and instead reinvest all
          profits.  However, another law requires a company to pay as
          dividends at least 25 percent of the gross income derived
          from tax relief benefits.  Thus, there are narrow limits to
          using the agreement.

              On top of these disadvantages, Swiss incorporation
          is expensive.  There is a stamp duty of 2 percent on
          authorized capital.

              If all this is not enough, neither the joint stock
          company nor the private limited liability company, the two
          business entities available in Switzerland, offers any
          particular tax advantages.

               While Switzerland is not a tax haven in the sense of
          the rest of this book, as a place to base your corporation
          or trust, there is one fascinating exception.

             Asset Protection and High Returns in Swiss Annuities

               Saving for a secure retirement has never been more
          difficult.  Taxes severely penalize savings, and efforts to
          cut taxes on savings are routinely derided by economically
          ignorant politicians as "giveaways" to the rich.

               And if you still manage to put money aside, despite
          punitive taxes, where do you invest it?  Banking systems
          are tottering in both the United States and Japan.  Nor can
          insurance companies necessarily be trusted anymore -- as
          anyone who bought annuities from California's First
          Executive Life can bitterly attest.

               And even if you manage to save and invest
          successfully, a third barrier looms between you and secure
          retirement -- a lawsuit could easily wipe out everything
          you own.  In the United States, especially, anyone who
          looks like he might have money is at risk of being
          victimized by a frivolous or vengeful lawsuit -- with
          potentially devastating consequences.

               If all this makes a secure retirement sound like an
          impossible dream, take heart.  There is a way that you can
          save on your taxes and protect your hard-earned assets
          against seizure by creditors.  Not only can you avoid the
          kinds of risks that brought down the customers of First
          Executive Life, but you can protect against the ravages of
          inflation as well.

               Best of all, it's a totally private form of
          investment.  Absolutely nobody need know about it -- not
          the government, your nosey mother⌐in-law, or even the
          hostile lawyer you may someday have the misfortune to
          confront.  This amazing form of investment is the Swiss
          annuity.  Like U.S.  annuities (and annuities in a number
          of other countries), their Swiss counterparts offer a tax
          benefit.  The money you put in compounds tax-free.
          Withdrawals are also tax-free -- until you've withdrawn an
          amount equal to the sum of your contributions.

               And if you're worried about inflation, you can
          denominate your annuity in Swiss francs.  One cumulative
          result of follies in Washington, D.C.  is that the U.S.
          dollar has lost 90% of its purchasing power since 1949.

               In contrast to the U.S. dollar, Swiss currency is
          still backed by gold.  (Swiss law requires at least a 40%
          gold reserve for each franc in circulation.  But actual
          Swiss reserves are over 50%) Thus, the Swiss franc is the
          world's sweetheart currency.  Its value has risen from
          US$0.23 in 1971 to US$0.75 in 1993.

               This sort of financial conservation is also your
          guarantee against the sort of catastrophe that ruined
          customers and policyholders of U.S.  insurance companies
          that went belly up in the 1990s.  In the 130-year history
          of the Swiss insurance industry,not one company has ever
          closed its doors or failed to meet its obligations.

               A Swiss annuity also offers excellent asset
          protection.  Under Swiss law, an annuity cannot be seized
          by any court⌐ordered collection procedure instigated by
          creditors.  So even if you were to become a victim of a
          lawsuit in litigious North America, your creditors could
          not enforce a judgement against your annuity in
          Switzerland.

               Of course, one way to avoid being sued in the first
          place is to avoid looking like an attractive target.
          Remember, lawyers typically take these cases on a
          contingency basis.  So you have to look like your pockets
          are deep enough to make it worth their while.

               If you don't look like you have a lot of money, you
          have virtually nothing to worry about.  No fee-hungry
          lawyer will waste his time trying to squeeze blood from a
          stone.

               Unfortunately, there is no financial privacy at all in
          the United States today.  Any insurance salesman, Treasury
          agent, credit⌐rating agency employee or private
          investigator worth his salt can find out virtually to the
          last penny exactly what you've got and what you owe.

               A Swiss annuity, however, may be one of the world's
          few remaining totally private investments.  Nether the fact
          that you own an annuity nor the earnings gained from it
          will be reported by Swiss insurance companies to the U.S.
          government or any foreign authority.

               U.S. citizens are required to report their ownership
          of foreign financial accounts ⌐⌐ such as bank and brokerage
          accounts to the Internal Revenue Service if the sum of the
          accounts totals $10,000 or more in any calendar year.
          Swiss annuities, however, are legally exempt from this
          reporting requirement.

               So unless you spill the beans yourself, no one need
          ever know how much you may have quietly tucked away in your
          Swiss annuity.

               One especially attractive annuity is a Convertible
          Annuity Certificate (CAC), commonly called Swiss Plus.  It
          is a single¬premium annuity that combines the privacy of
          Swiss banking with the typical safety of an annuity.

               One advantage of CACs is that they allow a choice of
          three currencies: the Swiss franc, the Deutschemark or the
          ECU.  At the moment, the yield on all these currencies is
          substantially above that of U. S. Treasury bills.

                Another advantage is that there are no up-front fees.
          So all the money you put in goes to work right away.
          Furthermore, you can withdraw your funds at any time.  (You
          are, however, subject to a withdrawal fee of SFr500 if
          you cash out before the end of the first year.)

               Profits earned in your CAC are also free from Swiss
          taxes.  And under U.S. law, corporate pension plans,
          Keoghs, or Individual Retirement Accounts (IRAs) can be
          invested or rolled over into CACs.  The minimum investment
          required for the Swiss Plus CAC is $10,000.

               The Swiss Plus CAC is one of the best investment
          vehicles you can find if you value safety and stable
          returns on your capital.  For more information, contact Mr.
          Jurg M. Lattmann, JML Investment Counsellors (Dept. 212),
          Germaniastrasse 55, CH⌐8033 Zurich, Switzerland.

               As always, adopt no tax-avoidance or asset protection
          strategy without professional guidance from your accountant
          or lawyer.